chevron-down Created with Sketch Beta.

ABA Health eSource

Health eSource Archives

Defining 'Referral' in the Anti-Kickback Statute

Benjamin Joseph

Summary

  • Those accused of violating the AKS may face criminal, civil, and administrative penalties.
  • It is clear that paying for referrals is a crime and AKS compliance is a precondition to federal healthcare program reimbursement.
  • The Stark Law only applies to physician referrals, while the AKS applies to anyone and any referral source.
  • Congress should amend the statute to give federal courts further guidance and enable them to use AKS to deter fraudulent and abusive healthcare practices.
Defining 'Referral' in the Anti-Kickback Statute
forest_strider via Getty Images

Jump to:

Introduction

The Anti-Kickback Statute (AKS) is one head of healthcare law’s “three-headed monster” to prevent fraud and abuse. In the medical industry, kickbacks create four concerns: (1) corruption of medical judgment, (2) overutilization, (3) increased costs to healthcare programs and beneficiaries, and (4) unfair competition. These concerns can easily materialize when providers have a financial incentive to make a referral.

The AKS is straightforward. It targets any remunerative scheme that intends to induce or reward referrals for items or services reimbursed by the federal healthcare programs. It prohibits anyone from knowingly or willfully offering, paying, soliciting, or receiving any remuneration in return for referring patients for services that are reimbursable by federal healthcare programs.

Since its inception, the AKS has protected patients and federal healthcare programs — especially Medicaid and Medicare — from increased costs, inappropriate patient steering, and all other harms “associated with inappropriate incentives tied to referrals.”

The penalties for violating the AKS are as follows:

Criminal

  • a > $100,000 fine
  • Imprisonment for up to 10 years

Civil

  • Civil Monetary Penalties
  • Up to $50,000 per kickback and 3x the remuneration amount.
  • False Claims Act Liability

Administrative

  • Exclusion from federal healthcare program participation
  • Exclusion from any state healthcare program

This article examines how the federal appellate courts interpret an essential term in the statute: “referral."

Going Back and Forth: Congress and the Federal Appellate Courts

Congress amends the AKS when the need arises. The original anti-kickback provision was included in the Social Security Amendments of 1972. The 1972 provision used three words — “bribes,” “kickbacks,” and “rebates” — to refer to the illegal payments that the AKS prohibits. Soon after its enactment, a split arose in the Circuit Court of Appeals for the Fifth and Seventh Circuits about the proper interpretation of “kickback.” In 1977, Congress added “remuneration” to the AKS “to cover the transferring of anything of value in any form or manner whatsoever.” Congress used the broad term “to clarify the types of financial arrangements and conduct to be classified as illegal.” “Remuneration” remains undefined in the AKS. The term includes “the waiver of coinsurance and deductible amounts (or any part thereof), and transfers of items or services for free or for other than fair market value,” and the AKS provides examples of what does not constitute remuneration.

After the 1977 amendments, Congress grew concerned that the AKS was imposing criminal penalties on individuals “whose conduct, while improper, was inadvertent.” So in 1980, the AKS was amended to include a scienter requirement: “knowingly and willfully.”

Again, the courts struggled to interpret an important part of the AKS — i.e., how to read and apply the statute’s mens rea. The uncertainty created two approaches. In 1985, the Third Circuit established the “one purpose” test. Under the “one purpose” approach, an AKS violation exists when just one purpose of the payment is to induce or reward referrals. The First Circuit articulated a different test, the “primary purpose” test, a more exacting standard required that the payment’s primary purpose be illegal. Throughout the late 1980s and early 2000s, more and more circuit courts began adopting the “one purpose” test.

Congress resolved the confusion about the AKS’s mens rea through the Patient Protection and Affordable Care Act (PPACA) in 2010. By adding a new provision, Congress clarified that those accused of violating the AKS do not need to “have actual knowledge of [the AKS] or specific intent to commit a violation of [the AKS].” The government must still prove that a defendant intended to violate the law, but it no longer needs to prove that the defendant intended to violate the AKS itself. As a result, the one purpose approach has been explicitly adopted by the First, Second, Third, Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits.

The Seventh Circuit’s Expansive Construction of ‘Referral’

An AKS conviction requires the government to prove that a defendant: (1) knowingly and willfully (2) solicited or received remuneration (3) in return for (4) a referral (5) of business reimbursable by a federal healthcare program. Despite the breadth of these distinct parts, the AKS offers only one clear-cut definition. Congress picked the low-hanging fruit, defining “Federal Healthcare Program” as "any plan or program that provides health benefits, whether directly through insurance, or otherwise, which is funded directly, in whole or in part, by the United States Government; or any State health care program.”

In 2015, the Seventh Circuit expanded the AKS’s reach by broadly interpreting “referral” in United States v. Patel. Before Patel, to “refer” generally meant to send a patient to a particular provider; it directly correlated with the AKS’s traditional, patient-steering rationale. The term took on a new meaning after the decision.

What happened in Patel?

The kickback scenario in United States v. Patel was irregular. Dr. Patel never personally discussed the selection of home healthcare providers with his patients. His medical assistant gave patients “an array of 10-20 brochures from various providers” throughout the Chicago area. Grand Home Health Care (Grand), a home healthcare provider, paid Patel for his signature on Form-485, which not only authorized home health services for patients but also enabled Grand to seek reimbursement from Medicare for its services. If Patel refused to sign the Form-485, then Grand would not have been able to seek Medicare reimbursement for its services. Despite the arrangement, Patel never asked his assistant to recommend Grand or any particular home healthcare provider. There was no evidence Patel that had ever “urged,” “directed,” or “steered” any of his patients to choose or use Grand. In fact, the vast majority of Patel’s patients used or continued using other home healthcare providers. Fewer than five percent of his patients were ever treated at Grand between 2004 to 2012. Furthermore, undisputed evidence showed that all of Patel’s patients required home healthcare when they selected Grand. There was no allegation that Grand provided substandard treatment to Patel’s patients.

At the bench trial’s conclusion, Patel made a straightforward, statutory argument: he could not be guilty of violating the AKS because he had never made any “referrals” to Grand. To “refer,” argued Patel, is “to personally recommend to a patient that [he or she] seek care from a particular entity.” How, then, could Patel be guilty of “referring” when — as the government conceded and the court acknowledged — Patel’s patients selected providers “with no input from the[ir] physician”?

The Seventh Circuit construed “referral” to include a physician’s certification and recertification of patients for home health treatment. Under this construction of “referral,” Patel was paid “in return for” his referrals, which took the form of certifying his patient’s care through his Form-485 signatures.

Patel marked the first time that a physician “who did not steer his patients to the health care provider from which he received [the alleged unlawful] payments” was found guilty under the AKS. Judge Flaum dismissed Patel’s statutory constructions of “referral” by centering the court’s analysis on the AKS’s “main purpose.” So, “to prevent kickbacks from influencing the provision of services that are charged to Medicare,” the Court determined that a “narrow definition of the term [“referral”] would defeat the central purposes of the [AKS].” Adhering to this central aim, the Court held that the AKS not only extends to a physician recommending a specific provider — i.e., the traditional part of a kickback scenario — but also to a physician’s authorization of care by a particular provider.

A Broad Interpretation of ‘Referral’

This novel inclusion concerned providers. Of course, paying for referrals is a crime. But the fear was that Patel potentially extended the AKS to apply any time a physician receives money from a provider, regardless of whether the physician steers a patient to that provider.

After Patel, the question of what “referral” means for AKS purposes lingered on. Interestingly, when federal appellate courts encounter this statutory interpretation issue, they have generally looked to Patel for instruction.

Post-Patel Cases that Turned on How to Construe “Referral”

So far, there is no circuit split in interpretation. In fact, there has been general agreement with Patel and its expansive reading of “referral.”

In 2017, two years after Patel, the Fifth Circuit heard a case with similar facts. In United States v. Dailey, the issue was “whether the $400 a month for signing Form 485s can legally constitute a ‘referral’ of an individual for the purposes of furnishing a service for which payment may be made under Medicare.” Citing Patel with approval, Judge Catharina Haynes stated: “By signing the Form 485s in exchange for a kickback, Dailey was authorizing care by a particular provider, Candid, and was therefore “referring” the patients to that provider.” Dr. Dailey, like Dr. Patel, had “acted as a gatekeeper to federally reimbursed care.” An AKS “referral,” under Dailey, requires that “payments made to a physician who certifies care must be paid ‘in return for’ the certification.”

In 2019, the Ninth Circuit decided United States v. Hong, incorporating the reasoning from Patel and Dailey to reject the defendant’s statutory construction of “referral.” The appellant, a massage clinic owner, argued that he had not “referred” his patients because they had all learned about the clinics entirely “on their own, by word of mouth.” The owner arguably played less of a “gatekeeper role” than Patel and Dailey. But “the issue,” according to the Ninth Circuit, “is not how the patients selected a massage clinic, but how they — or their identifying Medicare information — reached the physical therapy companies filing claims for benefits.”

In cases like Patel, at least two federal appellate courts have agreed with the Seventh Circuit’s construction of “referral.” However, without a statutory definition of “referral,” courts may start interpreting the term in conflicting ways.

A fundamental canon of construction is that undefined terms are generally “interpreted as taking their ordinary, contemporary, common meaning at the time Congress enacted the statute.” Because the federal appellate courts do not know what “referral” means exactly, they will eventually disagree about the term’s “ordinary, contemporary, common meaning.” Courts often turn to dictionaries “to discern the plain or common meaning of an undefined term.” And dictionary definitions are instructive — at least, up to a certain point. Black’s Law, for example, defines “referral” as “the act or an instance of sending or directing to another for information, service, consideration, or decision.” Bryan Garner’s Dictionary of Modern Usage defines “referral” as “the referring to a third party for personal information concerning another” or “the referring of a person to an expert or specialist for advice.” The Patel court looked to the Oxford English and the Merriam-Webster dictionaries in its analysis. The problem is that a standard dictionary definition is categorically incapable of capturing the specific type of medical referral that the AKS prohibits.

A Statutory Solution

Two things are clear. One is that paying for referrals is a crime. And two is that AKS compliance is a precondition to federal healthcare program reimbursement and therefore essential to many healthcare stakeholders. To ensure AKS compliance, everyone would benefit from knowing what constitutes an unlawful referral.

Clearly, a referral still requires that a physician “do something that either directs a patient to a particular provider or allows the patient to receive care from that provider.” “Something” is still required. But what exactly? The confusion underscores the need for a statutory definition. And that’s what Congress should do.

Congress should clarify the ambiguity and define “referral” in the AKS. Everyone would benefit from knowing what constitutes a “referral” because everyone has the potential to violate the AKS. The criminal law states that “whoever” solicits or receives kickbacks is guilty; the reach extends beyond medical personnel.

The issue is applying “referral” in situations that appear to violate the AKS, but, for some reason, seem to evade a commonsense understanding of “referral.” The Patel court, for instance, needed a construction of “referral” that connected Patel’s medical decision-making — really, the lack thereof — with what the AKS prohibits. To do so, the Seventh Circuit adopted a broad, inclusive definition of “referral.” When the Seventh Circuit recently revisited Patel, it articulated this point:

"The applicable lesson [from Patel] is that the definition of a referral under the Anti-Kickback Statute is broad, encapsulating both direct and indirect means of connecting a patient with a provider. It goes beyond explicit recommendations to include more subtle arrangements. And the inquiry is a practical one that focuses on substance, not form."

We know that Congress could define “referral” because it already has. The Stark Law defines “referral” as “the request by a physician for a consultation with another physician” and also “the request or establishment of a plan of care by a physician, which includes the provisions of designated health services.” Patel argued that Congress explicitly defined “referral” so broadly in the Stark Law “because the ordinary meaning of the term is much narrower.” The Seventh Circuit disagreed. (Interestingly, the Eleventh Circuit pulled a similar move with another key, undefined phrase: “in return for.” Like “referral,” this term has fostered incertitude in the federal appellate courts. In United States v. Shah, the Eleventh Circuit interpreted “in return for” by likening the AKS to a federal bribery statute.)

The AKS, however, cannot use the Stark Law’s definition of “referral.” Both statutes aim to protect medical decisions from improper financial incentives. But there are deliberate, fundamental differences. The Stark Law only applies to physician referrals; the AKS applies to anyone and any source of referral. Intent is another significant distinction. The AKS is an intent-based, criminal law whereas the Stark Law is a strict liability, civil statute. The judiciary should not use a civil law’s definition to impose criminal guilt.

Maybe Congress has opted not to define “referral” and other key terms in the AKS because explicit definitions would diminish the statute’s enforcement flexibility. But this flexibility comes at a cost — namely, confusion. And without a definition of “referral,” that confusion will continue to persist, which ultimately harms physicians, patients, and other stakeholders.

In the past, Congress has amended the AKS to clarify “kickback” and to clear up the mens rea confusion. Congress should amend the statute again to provide a definition of “referral.” By defining the obscure term, Congress would give the federal courts more guidance, enabling them to use the AKS to better deter (and punish) fraudulent and abusive healthcare practices.

Conclusion

A patient’s well-being should be the primary motivation for medical referrals. The AKS is a formidable law that protects patient choice and prevents healthcare fraud and abuse. To better accomplish the statute’s purpose, Congress should amend the AKS to define “referral.” Compliance with the statute will be easier to achieve. And the clarification will empower federal courts to apply the AKS consistently and predictably.

Disclaimer: This article’s opinions are solely the author’s. In no way do the author’s views reflect any policy or position held by the Office of the Attorney General & Reporter for the State of Tennessee.

    Author